I get to know dozens of the non-governmental groups trying to help America's disadvantaged in my role at the Manhattan Institute's "social entrepreneurship" award program. And it keeps me wondering about what really works – what philanthropy does well, what government does well and what our "social policy" should be. As a lapsed liberal still worried about how to help (I might say uplift) the poor, a key point for me was writing, in City Journal, about my father's childhood: “How the Agency Saved My Father” (http://www.city-journal.org/html/9_2_how_the_agency.html).
Professionally, I’m vice president for policy research at the Manhattan Institute, and also director of our Social Entrepreneurship Initiative. My latest book, Philanthropy Under Fire, will be published in September, by Encounter Press. In addition, I’m a City Journal contributing editor. From 1987 through 2006, I served as director of case studies in public policy and management at the Harvard Kennedy School of Government, where I was also a fellow at the Hauser Center on Nonprofit Organizations. My writing on the nonprofit sector has appeared in The Wall Street Journal, National Affairs, Society Magazine, The Chronicle of Philanthropy and The Public Interest. I’ve also written widely on housing policy, including in my book The Trillion-Dollar Housing Mistake: The Failure of American Housing Policy (Ivan R. Dee, 2003), and the monograph Repairing the Ladder: Toward a New Housing Policy Paradigm (Reason Foundation, 1996. My previous lives include one as a documentary filmmaker at WGBH-TV in Boston, where my work won three Emmy awards.

The Bangladesh Disaster And Corporate Social Responsibility

Factory worker Bangladeshi Shahinur looks though the devastation after a fire swept though the garment factory in Dhaka on January 27, 2013. At least seven female workers were killed on January 26 after a blaze swept through a small garment factory in the Bangladeshi capital of Dhaka, police and fire officials said. (Image credit: AFP/Getty Images via @daylife)

In the wake of the horrific clothing factory building collapse which killed as many as 800 workers near Dhaka, Bangladesh, international brand name retailers whose apparel products may have been produced there are under mounting pressure both to contribute to a compensation fund and to provide financial support for improving safety at some of the country’s 4,000 garment factories. For international anti-sweatshop organizations such the Amsterdam-based Clean Clothes Campaign, such steps would be appropriate—indeed, morally required—examples of corporate social responsibility, examples of a sort of corporate code of conduct to which firms should subscribe, even if they are not legally required to do so. In fact, in the wake of a previous deadly fire in November, Wal-Mart had already pledged $1.8 million to train Bangladesh plant managers in safety techniques.

Such “CSRCSR” pressure aims to force firms to meet a so-called “triple bottom line” that considers not just profit but working conditions and impact on the environment, as well. It can actually be thought of as a form of corporate philanthropy—the voluntary (albeit under pressure in this case) re-direction of profits to social causes. As the Harvard Kennedy School’s Corporate Social Responsibility Initiative has put it, “throughout the industrialized world and in many developing countries there has been a sharp escalation in the social roles corporations are expected to play.”

This latest terrible disaster is a good example of when such corporate social responsibility can best be justified. But it demonstrates, too, how much less justification there is for such corporate norms in other situations—such as in advanced industrial economies. What’s more, it highlights the limits of such an approach even in a place such as Bangladesh, which would seem to need it most. Indeed, as one who has written often about what private philanthropy can do better than government, the Bangladesh case demonstrates the opposite: that which only government can ultimately do.

Consider the difference between the home countries where Wal-Mart, GapGap, Children’s Place (the U.S.), H&MH&M (UK) or CarrefourCarrefour (France) sell their products, and the world of Rana Plaza, near Dhaka, where some of those products were apparently “sourced.” Bangladesh is, to all appearances, characterized by a “Wild East” regulatory regime, one in which corrupt political relationships allow owners and operators to ignore safety inspectors, if, indeed, such inspectors even visit. As the New York Times editorialized, Bangladesh has “labor laws and safety standards which theoretically provide protection but are rarely honored. In international comparisons, such as Transparency International’s Corruption Perception Index, Bangladesh falls between countries like Cameroon, Pakistan, and Nigeria – all places where bribery and favors, not equal treatment under law, are, are standard operating procedure. In the case of the Rana Plaza fire, the owner of the buildings used for apparel manufacture is said to be politically well-connected.

When businesses rely on the products of a country where regulation is weak or non-existent, or easily avoided through corrupt relationships, it is entirely appropriate for international groups to seek to enforce safety and labor standards by pressuring major firms to agree to them. The same firms should be quick, as well, to provide help to those families and communities harmed by the absence of such standards.

But the home countries of the international firms under fire for their links to Bangladesh have dramatically different political economies. They are democracies—and, in a democracy, it is through the rule of law, forged through the political process, that safety and labor standards are appropriately set. In the U.S., factory owners fear the arrival of OSHA inspectors—and that’s essentially as it should be. When firms are pressured in democracies to meet standards that go beyond regulatory requirements, whether in the name of the environment or other social causes, such pressure—whether through boycott campaigns or proxy suits—is ultimately disrespectful of the democratic process. It is elected officials who should be the focus of such demands.

As I’ve written in National Affairs, “there are some serious arguments in favor of compelling firms to abide by the standards of CSR. They are particularly relevant in the context of weak states, where even rudimentary regulatory standards might not exist or be enforced, or where such basic regulation might be subverted by corruption. It is certainly possible that industrial operations in weak or corrupt states can produce what economists call negative externalities—air pollution, water contamination, human-rights abuses—and that the pressure of an international CSR organization might help matters. But this is clearly not the situation in the United States and in other advanced industrial economies, where CSR is, in effect, seeking to bypass the give-and-take of the political process (through which the compromises of regulations’ costs and benefits are sorted out).”

Ultimately, moreover, it is only honest government which can make possible health, safety and labor standards. Indeed, that is made clear by reactions of those involved to the Bangladesh fire. The New York Times reports that “PVH, the parent company of Calvin Klein and Tommy Hilfiger, and Tchibo, a German retailer, have endorsed a plan in which Western retailers would finance fire safety efforts and structural upgrades in Bangladeshi factories — although they first want other companies to sign on” (emphasis added). In other words, absent the sort of consistent regulation that government provides, it’s difficult for firms to agree to standards they fear competitors might profit by violating. That same tragic dynamic was implicit in remarks attributed to Sohel Rana, owner of the building in which the fire occurred. In response to reports that structural flaws in the building had been known to factory owners who nonetheless continued to operate, he said, “I did not force the owners,” according to bdnews24.com, an online news source in Bangladesh, as quoted by the Times. “It was them who forced me, saying they would face huge losses, and shipments would be canceled if the factories were closed for even one day.”

Of course, it could be that, even in a non-corrupt and democratic Bangladesh, the government could decide to adopt relatively lax health and labor standards—in order to keep down costs and permit its poverty-stricken population to compete in the international marketplace. In such a situation, one would look to the press and the political process there as the source of change—of the same sort that happened in the U.S. in the wake of the early-twentieth century crusades of Upton Sinclair and Progressives. But the lesson here may be this: those campaigning against the sweatshops of Bangladesh and elsewhere, might, rather than vilifying corporations, better focus on improving governments.

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Hey Forbes, very brainy article here, like it was written by a college professor. However, it’s kind of aloof because there is a lot of insider terminology that goes over my head. Can someone simplify the message here?

2. Will the cost of those goods go down because of a market surplus (i.e. the big companies decrease ordering because of bad PR concerns?)

3. Will there be any meaningful reforms pushed thru before people forget?

4. Is there any business upside for an American business to participate in “Clean Clothes” programs (sorta like Fair Trade Coffee,etc) or that all just lip-service to allay the concerns of bleeding hearts?

Sorry for asking so many questions, but I know someone on here is wiser than me on these topics and I would value their advice.

Where to better exert one’s pressure is essentially about one’s scope of influence: I have no power or democratic rights to stop rogue states from crushing their own citizens. Nevertheless, my role as an international consumer invests me with power enough to pressure world corporations into making what I consider a better decision – although unorthodox – if they want or need the money I have to spend.